Most homebuyers across America are navigating levels of competition and demand that they’ve never experienced before. We’ve all seen the news reports detailing how COVID-19 increased demand for more suburban and rural properties, a large national transition to working from home, and low interest rates are fueling the housing market’s explosive growth. However, we rarely hear about the solutions to today’s new challenges. As an experienced Phoenix REALTOR®, I wanted to take this opportunity to share with you the benefits of new construction homes in Arizona and why it could be one of the best decisions you can make. 

Surge of New Construction Homes in Arizona

Earlier this year, Realtor.com released data showing that Phoenix was pacing to be the third-highest market for new construction homes compared to any major U.S. city. Specifically, they saw almost a 10% annual increase from builders filing permits to the tune of nearly 9,000 new homes! On the surface, that could understandably be interpreted as a surge of new inventory that will effectively keep prices low and provide homeowners with a diverse selection of properties at many price points. Unfortunately, as lumber prices exploded over the last year and labor shortages continued, new construction homes are still going to be sold at a premium compared to what they would have in 2019 prior to the pandemic. So why did you say buying new construction can be a safe bet, John? The reason is that you’re eliminating other buyers from the equation, along with their overvaluation of properties and bidding wars, and what you get in return is often a sound investment for the next 5 to 10 years. 

How to Avoid Bidding Wars? Don’t Get In One

As I mentioned above, one outcome of the pandemic was an exodus from major metropolitan markets to more suburban areas or even rural properties. This stemmed from people desiring more outdoor space and natural options for entertainment (something that was hindered during lockdowns in the city) and the large-scale adoption by companies approving remote roles for their suitable team members. When buyers were no longer tethered to their highrise condo in a major city and their coastal-salary would still be provided no matter where they lived, the appeal of keeping their roots in the city diminished and suburbia became a lot more attractive. However, this often means that locals can become frustrated by the buying power of these transplants relocating to their hometown. Need evidence of this? CBS 5 in Phoenix reported that existing properties on the MLS were averaging 10-20% higher sale-prices than asking-price this year, so you can see how that can translate into costly bidding wars. This isn’t the top of the scale either, as I had a client who saw a listing at $650,000 go for nearly $900,000 after all was said and done! 

Aside from the challenges to purchase at these inflated prices, there are emotional tolls too with constantly making offers and potentially being disappointed if you can’t compete against the competition’s deeper wallets. It’s because of this that I like to remind buyers of new construction. 

One of the best features of new construction is that, by and large, there is very little competition when you reserve a property in a new development. So long as the home site has been released for sale, many of the national builders allow buyers to lock-in their home’s construction prices with as little as $5,000 down. Not only does this eliminate the worry about fluctuating prices for materials, lumber, and labor, it also insulates you from those wealthy buyers who have money to burn. This is particularly attractive for homebuyers who can’t extend their budget for potential overages or choose not to purchase a home higher than its appraised value. 

Can New Construction Provide a Good ROI?

Depending on the market you’re looking to build in, the neighborhood features and amenities you’ll be receiving, and the details of your home site within that community, new construction homes can provide a nice return on investment (ROI). In no particular order, the financial benefits of new construction often include “all new everything”, modern features, peace of mind, warranties, and equity gains.

Everything is Brand New

For most of us, aside from the habitual DIYers, having everything brand new is really appealing. Your home’s core materials will have recently been installed, so you shouldn’t have to worry about such headaches or hazards from outdated materials (ie: asbestos), pest control issues (ie: termites, rodents, etc.) or having to rewire or repipe your home’s internal components for code updates or safety. You’ll also receive desirable features like Smart appliances, security features such as video doorbells and motion sensors, whole home mesh WiFi, cost-saving energy-efficient appliances and windows, new cabinets, floors, and paint. By and large, these properties are modern and worry-free, so you should save on home repairs and expenses for quite a while. 

Extended Warranties for Years

If peace of mind is important to you, the home warranties that come with new construction are hard to beat! Commonly, most national and regional builders will provide each home with a warranty of 1 year for comprehensive coverage, 2 years of coverage for everything “in the walls” (ie: electrical, plumbing, ventilation, etc) and up to 10 years for your foundation. If you’ve ever had a bad experience with a home renovation that quickly snowballed in expenses or are simply tired of a neverending “Honey Do” list, this could be a game changer for you.

You Gain Equity as the Community Matures 

New construction communities are sold in phases that typically reward the first buyers for investing in the project earlier than others. This is because there will be some construction in the neighborhood’s future, some of the amenities (community pools, athletic fields, open spaces, etc) might not be complete or even constructed yet, and you’re putting your faith in the builders for their vision of the neighborhood’s future. That said, it can make a lot of financial sense to get in on the ground floor. 

Phase 1 will include the first lots released for sale and this is where many buyers can get great deals! Conversely, the final phase is when the community is coming to completion and all home sites have been sold. This is when fewer deals are found, but not always, as some stragglers could be incentivized for sale to “close out” the neighborhood. Additionally, even in Phase 3 you’re not competing in bidding wars with other buyers, so it’s less stressful and more forecastable. If you’re able and willing to purchase in Phase 1, you’ll almost always gain some nice equity when the community is complete. Phase 2 is a bit pricier, but deals are still regularly occurring in this time frame. 

To share a real world example, I had a client who closed on a home early summer 2021 in Phase 1 of a community for $640,000 and the same model on a less desirable lot in Phase 2 sold for $700,000 a mere three months later. Keep in mind that both of these properties are certain to appreciate in the coming year while both Phase 2 and Phase 3 proceed and are eventually completed. 

If you want to hedge your bets even further, no matter the phase you’re in, pick a perimeter lot that backs to open space or a cul-de-sac that’s attractive to young families when you resale. These most desirable lots will be available at the start of each phase’s release, so keep your eyes open or sign up for the builder email alerts for new releases.

Final Considerations for Buying New Construction

Aside from the possibility of some construction in your upcoming neighborhood, depending on your phase of purchase, one thing that should be considered is landscaping. Almost all of the large builders will provide you with completed front and side yard landscaping packages. They do this to ensure the overall appearance of the neighborhood is consistent with their vision. However, the backyard will not be included in the home’s sale price and that’s something you’ll have to plan for and budget accordingly. What’s nice about the rear landscaping falling on your shoulders is that you can add those personal touches and custom features to your exterior that you might not have had the opportunity to do on the interior of your home. 

Whether you are looking to purchase a new build or an existing home our team of real estate experts can help you find your perfect property. Contact our office today! (480) 378-6700